Nifty 50 and Nifty Bank fell 2.4 and 2.8 per cent last week, ending their two-week winning streaks. F&O data showed a bearish shift as fresh short positions built up. While retail traders kept some bullish bets, foreign investors increased their net short positions. Key support levels remain at 22,350.
Nifty 50 (22,600) and Nifty Bank (54,287) snapped their two-week winning streaks, falling 2.4 and 2.8 per cent respectively, last week. The decline has brought the bears back into focus.
The futures and options (F&O) data indicates a bearish shift in sentiment. Notably, cumulative futures open interest (OI) increased for both indices despite the fall, suggesting fresh short build-up.
Foreign institutional investors (FIIs) increased their net short positions in index futures by 3 per cent to 2.8 lakh contracts. Their net short positions in index calls surged 27 per cent to 2.8 lakh contracts. However, their net long position in index puts rose 10 per cent to 5.7 lakh contracts, reinforcing the bearish sentiment.
Meanwhile, retail traders reduced their net long positions in index futures marginally to 2.15 lakh contracts. However, their net long positions in index calls quadrupled to 2.26 lakh contracts, indicating bullish bets.
Overall, while derivatives positioning indicates bearishness, the charts show that both indices are holding above key supports. This suggests that a recovery remains possible, although a breakdown below these levels could intensify selling pressure.
Since October contracts are nearing the expiry (October 27), we shall consider November series for analysis, particularly futures contracts.
Nifty 50
Nifty (Nov) futures (22,661) fell 2.4 per cent last week, while its outstanding open interest (OI) tripled from 28.4 lakh contracts to 85.5 lakh contracts, indicating fresh short build-up.
The cumulative OI (including October, November and December futures), too, increased from 201 lakh contracts to 223 lakh contracts.
While futures positioning shows a clear bearish bias, options data, particularly for the November series, offers a slightly positive signal. The Put Call Ratio (PCR) of November options stood at around 1.10 on Friday compared to 1.06 a week ago. A ratio greater than 1 indicates relatively higher put writing, a positive sign.
Nevertheless, given the considerable increase in short positions in futures, the overall derivatives data suggests a bearish bias.
On the other hand, despite last week’s sell-off, both Nifty 50 and Nifty futures continue to trade above their respective key support levels.
The November futures has immediate support at 22,500, followed by 22,350. As long as the latter holds, the possibility of a rebound remains intact. However, for a sustained rally, the contract should decisively break above the resistance at 23,300.
Therefore, 22,350 and 23,300 are the crucial trend-defining levels for Nifty futures. This also raises the possibility of the contract consolidating within this range before establishing a clear trend.
If Nifty (Nov) futures breaks above 23,300, it can potentially extend the rally to the 23,800-24,000 resistance band. Alternatively, a breakdown below 22,350 can drag the contract to 22,000 and subsequently to 21,800.
Overall, the direction of the next leg of the trend hinges on a breakout from the 22,350-23,300 range.
Nifty Bank
Nifty Bank (Nov) futures (54,552) declined 3 per cent last week. The outstanding open interest (OI) of this contract surged nearly sixfold from 2.1 lakh contracts to 12.5 lakh contracts, indicating fresh short build-up.
The cumulative OI, too, increased from 25.5 lakh contracts to 29.2 lakh contracts during this period, supporting the bearish bias.
Interestingly, the Put Call Ratio (PCR) of November options increased from 0.80 to 0.90. While a ratio below 1 indicates a bearish bias, the increase over the last week suggests relatively higher put writing, a positive sign.
Nevertheless, the broader indication from the futures and options data remains bearish.
On Friday, Nifty Bank (Nov) futures slipped below the previous low of 54,446, recorded in September, and touched 54,400 before ending the session at 54,552. Thus, the support at 54,400 remains intact.
If the contract recovers from the current level, it will face resistance at 55,000 and 55,750. Another notable hurdle is at 56,500. Only a decisive breakout above this level can turn the outlook positive, potentially triggering a rally to 58,000 and subsequently to 58,800.
Alternatively, if Nifty Bank (Nov) futures breaks below 54,400, it can decline to 54,000. A breach of this level can trigger a fresh downswing towards 53,000.
Like Nifty futures, Nifty Bank futures is trading between two important levels, which are 54,000 and 56,500. However, the latter exhibits relatively greater weakness. Therefore, if the downtrend resumes, Nifty Bank futures could witness a sharper decline than Nifty futures.